26/02/2023

Debra Hazelton’s decision to take all of AMP’s eggs out of Francesco De Ferrari’s basket could spell the end of the 171-year-old Australian icon as we know it.

But after being thrown a number of offers from potential suitors — some more formal than others — Hazelton has decided to do away with the dithering that the AMP board engaged in when it attempted to ride out the cultural riot that followed revelations Pahari was promoted despite settling a recent sexual harassment claim and penalised $500,000.
The internal upheaval also sparked the resignation of AMP Australia boss Alex Wade, over separate matters that included allegations of improper messages to female colleagues.
Debra Hazelton at AMP headquarters in Sydney Louie Douvis
The snafu means neither of AMPs main businesses AMP Australia (wealth management and banking) and AMP Capital (asset management) have a current permanent CEO.
That makes it easy, if a buyer of any asset offers a better deal for shareholders than the potential growth offered by De Ferraris current strategy, for the board to accept it.
Having this week watched IOOF snap up National Australia Banks beleaguered MLC wealth division for $1.4 billion, Hazelton recognised there were still parts of the market willing to take on complex acquisitions for large sums of cash.
AMP has received varying levels of interest, notably from Macquarie Group and KKR, but has had no concrete offers yet.
“One way or another, AMP will disappear, I imagine,” said Brett Le Mesurier, an analyst at Shaw and Partners.
Bell Potter analyst Lafitani Sotirou said part asset sales, and or total business sale, or break up sale to different parties is all on the cards.
Regarding a break-up of AMPs business, there would be multiple parties for each asset that would be interested, he said.
But for De Ferrari, who stands to pocket an additional $12 million if he sticks around to 2022 at AMP to buy out the incentives he was due at Credit Suisse, the hurdles to any divestment or spin-off are large enough to see the portfolio review result in no sale at all.
Even AMP Capital, the crown jewel in the broader group, could be unappealing to a suitor — 60 per cent of its mandates are linked to internal AMP wealth management products and the life insurance division (which was recently sold to Resolution Life). These are in consistent outflow, according to Citi analyst Nigel Pittaway, and Resolution now has the option to go external, meaning AMP will have to fight to retain those funds.
AMP Capital also lacks the capital flexibility or asset development capabilities of rival infrastructure outfit Macquarie Group, and is unlikely to win mandates from the local industry superannuation sector, which is increasingly in-housing and wary of AMPs sagging reputation.
In the wealth management business, costs are greater than the profit margin earned by its flagship North platform. And although costs continue to grow, AMP is yet to move all of its products across to the lower-fee platform. Any buyer will also have to complete De Ferraris plan to rationalise super master trusts from 70 to 11, a process which doesn’t come cheap.
Pittaway expects as much as $500 million is needed to complete the wealth management transformation, money AMP simply doesnt have, even when factoring the possibility of any criminal fines laid against the group stemming from the royal commission. The regulator has more than five current cases against the company soon to head to court.
Meanwhile, AMP Bank, which has grown fast, recently disclosed provisions twice as high as its competitors. Its also loaned out large sums to financial advisers to fund the purchase of advice businesses that are now worth a fraction of their previous value. A buyer would be taking on a lot of risk.
Head office costs — not connected to any business operations — hit $54 million in the first half of 2020. Thats a lot of big salaries at Circular Quay.
Theres still so much overhead, there’s still so much complexity, theres still so much erosion of value, Le Mesurier said.
But for shareholders, any potential takeover might be the last decent chance to get any sort of residual value out of AMP.